Media Briefings

THE IMPACT OF VOTING RIGHTS ON FINANCIAL SYSTEMS: Evidence from two centuries of suffrage reforms in 18 countries

  • Published Date: June 2018

Extending voting rights to broader segments of the population has a significant impact on the way that countries finance their economies. That is the key finding of research by Hans Degryse, Thomas Lambert and Armin Schwienbacher, published in the June 2018 issue of the Economic Journal.

In particular, their study finds, giving more people the vote tends to hamper the development of stock markets but promote the development of the banking sector. What’s more, the longer that women have had to wait for the vote, the more likely a national economy is to rely on stock market finance more than on bank finance.

Overall, the researchers’ findings are consistent with the insight that small elites pursue economic opportunities by promoting capital raised on stock markets. In contrast, broader political participation empowers a middle class, which prefers bank finance as it is composed of voters with proportionally more exposure to labour income relative to capital income.

This research has broader implications. The scope of voting rights may drive the adoption and content of financial regulation shaping the way that financial intermediation takes place. This ultimately determines the long-term performance of economies.

The researchers begin by noting that financial systems fulfil a number of key functions in the economy, thereby contributing to growth. By transferring funds from savers/investors to borrowers such as households and firms, financial systems provide the grease for the wheels that keep the economy turning.

Therefore, it is vital to have a clear understanding of the fundamental factors that drive the development of financial systems. The research shows that suffrage institutions – those that define who in the population has the right to vote – play a critical role.

Financial systems encompass financial institutions (such as banks) and financial markets (such as stock markets). But the population is composed of corporate stakeholders (workers, investors, managers) and thus is not indifferent as to whether governments should promote – through their policy choices – the development of stock markets or the banking sector.

Indeed, while both stock markets and banks fulfil similar functions in the economy, they have a different impact in terms of the degree to which each corporate stakeholder bears risk. Stock markets typically lead to riskier but more profitable investments, at the cost of potentially higher risk-bearing by workers and managers. In contrast, banks have a tendency to limit the risk-taking behaviour of corporate managers because, as debtholders, they do not benefit from the upside potential of riskier investments.

The voting population will prefer politically to support bank finance if it relies more, in the aggregate, on labour income. But the voting population will prefer relying on stock market finance if it has a sufficient amount of capital income relative labour income. By defining who has the right to vote in the population, suffrage institutions thus play a pivotal role in the way that countries finance their economies.

The researchers analyse the gradual extensions of suffrage to various segments of the population over the nineteenth and twentieth centuries in 18 countries. They demonstrate that suffrage extensions change the political preferences of the voting population and, thereby, policy choices supporting either stock market finance or bank finance.

Specifically, the study provides empirical evidence that extending the suffrage to broader segments of the population hampers the development of stock markets relative to GDP. In contrast, broadening the suffrage is conducive to banking sector development relative to GDP.

Further evidence reveals longer-term effects produced by extension of the suffrage: a 25-year delay in the introduction of women’s universal suffrage increases the importance of stock markets today relative to the banking sector by 17.5%.


The Political Economy of Financial Systems: Evidence from Suffrage Reforms in the Last Two Centuries’ by Hans Degryse, Thomas Lambert and Armin Schwienbacher is published in the June 2018 issue of the Economic Journal.

Hans Degryse is at KU Leuven. Thomas Lambert is at the Rotterdam School of Management, Erasmus University. Armin Schwienbacher is at Skema Business School in Lille.

For further information: contact Thomas Lambert on: +31 (0)10 408 1450
(email:; Romesh Vaitilingam on +44-7768-661095 (email:; Twitter: @econromesh); Hans Degryse via email:; or Armin Schwienbacher via email: